Are U.S. Energy Exports Ready to Pop?

Recent rulings loosening U.S. oil export bans, projected reduced U.S. demand and increasing global demand point to increasing U.S. energy exports.

Jonathan Cook
Jonathan Cook
Jul 3, 2014 at 8:54AM
Energy, Materials, and Utilities

There have been a multitude of articles on the recent ruling from the U.S. Department of Commerce that Pioneer Natural Resources (NYSE:PXD) and Enterprise Products Partners (NYSE:EPD) could begin exporting their minimally refined oil to foreign buyers. This produced a market sag for refiners and a jump for producers, especially for Pioneer and Enterprise as the ruling is, technically, limited to those two companies. Read more on the decision here.

Missing the forest?
However, investors may be missing the forest for the trees. While the ruling is limited at this point, the ruling's effects, combined with long-term projections in U.S. energy use, look to be bullish for oil producers, refiners, and every company in the export chain. The opening up of U.S. exports to the world may be the next big boon for U.S. energy companies and their investors.

The Times of India reports:

US energy markets marked a seismic shift on Wednesday after federal officials provided clarity on what companies glutted with domestic shale oil can ship to thirsty markets abroad, leading to expectations for a potential surge in petroleum exports.

And considering the never ending turmoil in the Middle East, The Times added, "Energy-hungry Asian countries, which get most of their oil from the Middle East, would welcome extra US supplies."

U.S demand falling?
In addition, as U.S. energy supplies rise, the U.S. Energy Information Administration (EIA) reports that U.S. domestic light-duty-vehicle (LDV) energy consumption, which makes up 61% of all transportation energy consumption in the U.S. and nearly half of all oil consumption, is expected to fall significantly.

Source: U.S. Energy Information Administration Annual Energy Outlook 2014.

This is expected regardless of whether LDV vehicle miles traveled (VMT) increases or decreases by the projected amounts.

Source:U.S.Energy Information Administration Annual Energy Outlook 2014.

In other words, gasoline consumption is expected to fall, and this means falling U.S. oil consumption. The takeaway: U.S. oil (and energy) exports are expected to increase as domestic demand decreases.

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Other companies are chomping at the bit to take advantage of the Commerce Department's ruling. For example, Plains All American Pipeline, L.P. (NYSE:PAA) already has Eagle Ford-based stabilizers in production and is expanding capacity to 120,000 barrels per day (bpd).  

Moreover, don't forget that product needs to be moved. Magellan Midstream Partners, L.P. (NYSE:MMP) in a joint venture with Kinder Morgan Energy Partners L.P. (UNKNOWN:KMP.DL) already moves stabilized condensate product through its 100,000 bpd pipeline (with expansion capability to 150,000 bpd) to the Corpus Christi terminals, which have existing large vessel berthing ready to handle the exports.  

Bottom line
For the long-term investor the new Commerce Department's ruling, coupled with both a decreasing U.S. fuels market demand and an increasing global demand, means that U.S. energy exports to the world are going to increase. Like the proverbial rising tide, a rising export market should lift all the companies in the export chain.